IMF Announces Staff-Level Agreement with the Republic of Kosovo on €106 Million Stand-By Arrangement

Press Release No. 10/216
May 27, 2010

An International Monetary Fund (IMF) mission, led by Mr. Jürgen Odenius, visited Pristina from May 19 to May 27, 2010, and reached agreement, subject to financing assurances from donors and approval by IMF Management and the Executive Board, on an economic program to be supported by a 18-month, SDR 92.7 million (about €106 million) Stand-By Arrangement. The Executive Board is expected to meet to discuss the program in July. Kosovo would be able to draw SDR 18.8 million (about €21.5 million) immediately after Board approval.

At the end of the mission, Mr. Odenius issued the following statement:

“Kosovo’s economic performance has strengthened considerably over the past decade, but large imbalances persist. The external imbalances reflect infrastructure bottlenecks, especially in the transport system and energy sector, that continue to stifle productivity and competitiveness. The government’s necessary efforts to improve the public infrastructure, combined with the need to address pressing social issues, led to a significant deterioration of its public finances. Moreover, the decision to build a highway of national importance is creating additional expenditure pressures.

“For these reasons, the authorities are now taking strong action to tighten the budget deficit, improve public financial management, and enhance tax administration in order to restore fiscal sustainability. These reforms will be accompanied by measures to improve the efficiency of the economy through the privatization of the Post and Telecommunications of Kosovo and to strengthen performance of the energy sector.

“The fiscal measures in the economic program agreed with the mission aim to limit the overall budget deficit in 2010 to 3.4 percent of GDP. In order to meet this target, the government intends to take revenue measures and restrain current spending, given the large commitments for capital expenditures. Expenditure restraint will need to be maintained throughout 2011. Therefore, the government has decided to amend the Law on Public Financial Management and Accountability in order to ensure that future mid-year budget reviews will be budget neutral and will no longer lead to a widening of the fiscal deficit.

“We welcome the policy measures that the authorities are taking, which justify access to Fund resources—equivalent to about 157 percent of quota—and deserve continued support from the international community.”